The “exchange tables” of Luis Caputo and Martínez de Hoz

The historical analysis of economic policies in Argentina allows valuable lessons to be drawn about the sustainability of the implemented programs. In this short article, the characteristics and consequences of the “exchange table” of Martínez de Hoz with the recent one of Minister Caputo in 2024with the aim of evidencing the unsustainability of the current exchange program.

The current program implemented by the Argentine government under the management of Javier Milei and Luis Caputo presents disturbing similarities with the controversial “exchange table” of Martínez de Hoz, applied between 1978 and 1981.

Historical context: The “exchange table” of Martínez de Hoz

In 1978, the Minister of Economy José Alfredo Martínez de Hoz implemented a crawling peg scheme with an initial devaluation of 5.23% and monthly corrections of 4.5%. This policy sought to control inflation while liberalizing the economy without negotiations in exchange (until then countries only lowered their import tariffs if in exchange they obtained a reduction in tariffs for their own products). The scheme sought to stabilize the economy through a pre-established schedule of decreasing devaluations. This program was developed in a context of generous imports, high inflation and growing external debt, generating devastating results:

• Devaluations and crawling peg 1978: It began with an initial devaluation of 5.23%, followed by monthly corrections of 4.5%.
• Financial and banking opening 1977: 1,197 new banking and financial branches were authorized, allowing entities to capture deposits from individuals, with the state guarantee of deposits implemented in 1977, through Financial Reform Law 21,526.
• Impact on interest rates: Exuberant rates made the financial cost of companies unpayable, resulting in a massive transfer of resources to the financial sector.
• Deindustrialization: The net financial subsidy to industrialists was eliminated, going from +14% to (-9%), accelerating the deindustrialization process.
• Macroeconomic results: Between 1978 and 1981, GDP registered marked fluctuations with average falls: (-3.9% in 1978), +6.8% (1979), +0.8% (1980) and (-6.2% in 1981). ), with inflations that ranged between 175.5% and 104.6%.
• Debt and capital flight: The public debt went from US$9,960 million to US$20,240 million, while the private debt multiplied by almost four, reaching US$15,647 million. Between 1980 and 1982, $22 billion was lost.

The collapse of this model came in 1981 with uncontrolled devaluations that quintupled the value of the dollar in one year, a symbol of the structural failure of “la tablita.”

Parallels with Caputo’s program in 2024

More than four decades after Martínez de Hoz’s experience, Caputo’s program seems to emulate the same principles, only with fiscal modifications to adjust primary public spending:

• Bet on financial valuation: As in 1978, the current program prioritizes speculative instruments over real production. Interest rates were generous in dollars, encouraging a carry trade that has benefited large investors (with 85% in fixed terms, and up to almost 300% in bank shares, in MEP prices) at the expense of the economy. with GDP that will fall around (-3%) in 2024 (p).
• Weak inflation control: The best rate (2.4% monthly, projected almost 33% annualized). Although current mechanisms attempt to avoid inflation, inflationary pressures remain high, eroding competitiveness.
• Indebtedness: The maintenance of exchange rate parity, although supposedly without financing the fiscal deficit or monetary expansion, is supported by growing indebtedness, recalling the ersatz dynamics of the 1980s.
• Dependence on the financial sector: The current economy also reflects a disproportionate weight of the financial sector in the GDP, encouraged by a brutal bank spread in dollars to finance the Treasury, which suffocates the productive sectors.

Both programs underestimated:

• Negative redistributive effects: The “tablita” punished the productive sectors and benefited financial speculators, reproducing a dynamic that is repeated today.
• External vulnerability: Both models compromise sustainability, increasing dependence on volatile capital flows and debt.

A cycle that repeats itself?

Martínez de Hoz’s “exchange table” left a legacy of deindustrialization, indebtedness and economic collapse. The exchange rate similarities with Caputo’s current program are alarming and suggest that Argentina could be heading towards a similar destiny if structural imbalances are not corrected. As Eduardo Basualdo warned, “neoliberal policies are not only ineffective in resolving crises, but they tend to deepen them”. Aldo Ferrer pointed out more harshly: “In economics, so many errors are not sustained, with such consequences, therefore, time, if there are no interests behind them.”

An urgent warning

Argentine economic history teaches that programs such as Martínez de Hoz’s “exchange table” not only failed to stabilize the economy, but also deepened its structural imbalances, leaving a legacy of debt, deindustrialization and social crisis.

Caputo’s “exchange table” in 2024 seems to follow the same course, but with the aggravation of a less favorable global context and a country with less capacity for maneuver. If the current program persists, Argentina could face a crisis of similar magnitude to that of 1981, or even worse, without the recovery margins of that time.

It is imperative to rethink the country’s economic priorities. If we do not do so, we will be condemned to repeat the mistakes of the past, mortgaging the future of entire generations in pursuit of interests that only benefit a privileged minority.

Director of Esperanza Foundation. https://fundacionesperanza.com.ar/ UBA Postgraduate Professor and Master’s Degrees at private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books.